A 'Pipe Dream?' Russia, North and South Korea's Gas Pipeline Quest

A pipeline across N. Korea to provide natural gas to S. Korea has generated buzz. Will old divisions scrap the deal?

By Brad Babson for The Diplomat

October 31, 2012

The idea of building a commercially and politically viable gas pipeline from Russia’s Sakhalin Island fields across North Korea to provide a long-term supply to South Korea has been percolating for years as an enticing potential win-win-win for all three countries. The underlying logic of mutual economic gain and potential stabilizing benefits of energy interdependence has kept open the channels for consultation among the parties despite the ups and downs in inter-Korean relations, political transitions in both Koreas, and the breakdown of multilateral diplomacy seeking solutions to the continuing security challenges on the Korean peninsula.

Prospects are brightening that the pipeline might resurface in 2013 as a serious topic for more intensive attention and possible progress due to what seems to be a relatively smooth transition to a more economically focused and future-oriented regime in North Korea, upcoming presidential elections in South Korea that are expected to lead to a more pro-engagement policy with the North no matter which candidate is victorious, and Russia’s recent decision to forgive 90% of North Korea’s debt and invest in future economic cooperation.

The process over the past year or so has involved a series of bilateral consultations between Russia and the two Koreas, with Russia both seeking to advance its own interests in the deal and broker the interests of the two Koreas. This, however, has not lead to a viable plan. North Korea has demanded significantly higher transit fees than is normal for allowing the gas across its territory.

The world market for gas is also changing with new technologies for extraction expanding global supply and lowering prices, and the U.S. is potentially entering the global market as a supplier rather than importer. South Korean concerns about potential North Korean disruption of gas flows for political purposes have led to creative proposals to route gas through the North in ways that would create losses for North Korea not only of revenue but also use of gas for its own needs if such disruptions were to occur. All these factors are not conducive to productive deal-making negotiations through the current process. Thus the prospects for an early agreement that is commercially and politically feasible remain elusive.